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Wage Determination Practices And Discrimination Risk

Written exclusively for ChubbWorks

After trying for over a year to mediate a discrimination dispute with a major software firm, the Department of Labor (DOL) filed a new complaint against the employer, renewing the Department's gender and race discrimination claims. The new filing alleges that the employer's discriminatory actions cost female and minority employees nearly $400 million.

The DOL's complaint accuses the software giant of discriminating against women and people of color by using prior salary rates to set initial compensation, and also by directing these employees toward lower paying career paths.

The complaint points out that 90 percent of the employer's college hires from 2013 through 2016 were Asian, even though the overall Asian population in those colleges was 65 percent. The DOL alleges the employer's significant preference for Asian employees, who are predominantly visa-holders, indicates the employer's desire to control and suppress wages for this group, as these workers must rely on employment to keep their visas.

The new complaint also accuses the employer of destroying recruitment and hiring records during the mediation process. Lauren Feiner "Department of Labor accuses Oracle of discrimination that cost women and people of color $400 million" www.cnbc.com (Jan. 22, 2019).


Commentary and Checklist

The DOL in this case will have to work hard to prove the employer’s motive for hiring predominantly Asians out of college, or why females and non-whites tend to follow lower-paying career tracks. However, demonstrating a wage disparity is more straightforward, as the DOL only has to compare the wages of employees in similar job positions to show a disparity exists.

The complaint states the alleged wage disparity is due, in part, to the employer’s use of prior salary rates as a basis to determine initial wage. Under the Equal Pay Act (EPA), employers can justify wage disparity as long as it is based on a seniority or merit system, a quantity or quality of production system, or on “any other factor other than sex.” Similar guidelines in federal employment law protect against wage discrimination based on race.

In recent years, the courts have split in their rulings on whether or not prior salary history is a legal basis for wage determination. In response, some states have made it illegal for employers to inquire about salary history in the hiring process.

Although basing wage rates on prior salary may not be illegal, if it results in a significant pay inequality between protected classes, employers should take steps to address and remedy the situation.

Consider the following best practices to avoid claims of wage discrimination:
 

  • Know your state and local wage and hour laws.
  • Remove wage history questions from job applications. This also simplifies procedures, particularly if you are a multi-jurisdictional employer.
  • Train hiring managers and human resources personnel regarding the proper practices. Refrain from relying on salary databases.
  • Base compensation decisions, at hiring and going forward, on legitimate business reasons.
  • Document when an applicant voluntarily discloses salary information, taking care not to allow the information to be a determining factor.
  • Regularly audit your hiring practices and compensation to make sure they are nondiscriminatory with regard to any protected class status. These audits can form the basis for a defense to an equal pay claim or at least as to punitive damages.
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Latest Numbers

Unemployment Rate

3.8% in Mar 2019

Payroll Employment

+196,000(p) in Mar 2019

Average Hourly Earnings

+$0.04(p) in Mar 2019

Employment Cost Index (ECI)

+0.7% in 4th Qtr of 2018

Productivity

+1.9% in 4th Qtr of 2018

Source: Department of Labor

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